Record Freeze in U.S. Extending Wheat Crop Damage

Global wheat supplies will drop to the smallest in four years as production declines from Argentina to Russia to Australia, the U.S. government estimates. Photographer: Daniel Acker/Bloomberg

April 23 (Bloomberg) -- The coldest start ever to the
wheat-growing season in Kansas and freezing weather across the
southern Great Plains are compounding damage to U.S. crops
already hurt by the worst drought since the 1930s.

“I’m going to assume 75 percent of my wheat froze” when
temperatures dropped as low as 13 degrees Fahrenheit (minus 11
Celsius) on April 10, said Gary Millershaski, who has been
farming in southwestern Kansas for three decades and this year
planted 2,800 acres of hard, red winter wheat on his land near
Garden City, Kansas. “It looks like someone sprayed a defoliant
on it.”

Farmers in the U.S., the world’s biggest exporter, probably
will abandon 25 percent of their hard, red winter wheat, the
most common variety grown, according to the average of 11
analyst estimates compiled by Bloomberg. That would be the most
since a drought in 2006. Societe Generale expects U.S. output
will drop 27 percent, sparking a 15 percent rally in Kansas City
wheat futures to $8.50 a bushel by the fourth quarter.

Wheat sown from September to November went dormant over the
winter as drought left crops in the worst condition since at
least 1985. Growth resumed in March, and temperatures this month
in Kansas, the largest U.S. grower, were the lowest in more than
a century for areas that produced about half of the state’s
harvest last year. Global supplies will drop to the smallest in
four years as production declines from Argentina to Russia to
Australia, the U.S. government estimates.

U.S. Varieties

Futures have risen 1.6 percent to $7.385 this month on the
Kansas City Board of Trade after touching a nine-month low of
$7.045 on April 1. The Standard & Poor’s GSCI Agriculture Index
of eight commodities has dropped 4.4 percent and the MSCI All-Country World Index of equities gained 0.3 percent. Treasuries
are up 0.9 percent, a Bank of America Corp. index shows.

Production of winter wheat, which accounts for 72 percent
of all U.S. varieties grown, will drop 3.9 percent to 1.581
billion bushels (43 million metric tons), Informa Economics
Inc., a Memphis, Tennessee-based research company, said on April
19. Of the total, the hard, red variety will decline to 850
million bushels from 1 billion. The U.S. Department of
Agriculture will make its first estimate on May 10 based on a
survey of farmers.

Mean temperatures across four of nine crop districts in
Kansas in the first 18 days of April were the lowest since
record-keeping started in 1895, said Mary Knapp, the state
climatologist. The cold snap came as analysts, traders, farmers
and buyers prepared for the Wheat Quality Council’s annual
three-day tour of Kansas fields starting April 30. The group
will issue a forecast for the harvest, which starts in June.

Global Benchmark

Even after this month’s rally, wheat has been in a bear
market for much of the year. Kansas City futures dropped 22
percent from the closing high on Sept. 14, mostly on
expectations that the drought would end and global grain supply
will increase later in 2013. Prices on the Chicago Board of
Trade, the global benchmark, tumbled 26 percent from a peak on
July 20.

While cold weather and drought hurt crops in western
Kansas, farmers in the eastern two-thirds of the state and in
Oklahoma won’t abandon fields because most got enough moisture
and avoided freezes, said Bill Spiegel, a spokesman for the
Manhattan, Kansas-based industry group Kansas Wheat. Should rain
fall and temperatures moderate, even those with damaged fields
may harvest a “decent” amount of grain, he said.

‘Decent Crop’

A decline in supply may reverse a six-month, 7.1 percent
slide in global cereal costs tracked by the United Nations’ Food
& Agriculture Organization. The Rome-based group anticipates a
4.4 percent increase in wheat production to 690 million tons
this year, led by the 27-nation European Union and the nine-country Commonwealth of Independent States.

Hedge funds are getting less bearish, trimming their net-short position in Chicago futures and options to 27,178
contracts in the week ended April 16 from 49,223 in February,
U.S. Commodity Futures Trading Commission data showed on April
19.

A rally in prices may increase costs for companies from
Mexico City-based Grupo Bimbo SAB, the largest bread maker, to
General Mills Inc., the owner of the Wheaties cereal brand. The
Minneapolis-based company’s grain-price hedging program extends
to the end of the fiscal year on May 31, Chief Financial Officer
Donal Leo Mulligan said on a March 20 conference call.

Severe Drought

As of April 16, 73 percent of the six-state High Plains
region that covers North Dakota, South Dakota, Nebraska,
Wyoming, Kansas and Colorado was in severe drought, which means
crop losses are likely, according to the Lincoln, Nebraska-based
U.S. Drought Monitor. Drought in the southern Plains caused
blowing dirt similar to the Dust Bowl era of the 1930s.

While the situation has improved from an 87 percent severe
drought rating three months ago, it compares with 4 percent a
year earlier. In Kansas, every county is classified as being in
some level of drought, with 61 percent rated extreme.

June, July and August may bring extreme heat that would
further sap moisture from the soil, MDA Weather Services in
Gaithersburg, Maryland, said in a report on April 18.
Temperatures will be “warmer than the 30-year norm,” MDA said.

Growers from South Dakota to Texas seeded 28.9 million
acres with hard, red winter wheat late last year, a variety that
accounts for 44 percent of U.S. wheat output, government data
show.

When plants went dormant in November, about 33 percent of
the U.S. winter-wheat crop was in good or excellent condition,
the worst for that time of year since at least 1985. As of April
21, 35 percent got the top rating, below the five-year average
of 51 percent.

‘Dirty Thirties’

“I’ve never seen the ground as dry as it is,” said
Millershaski, who is also the president of Kansas Area Wheat
Growers, an industry group. “We’re drier than we were in the
Dirty Thirties.”

The USDA is forecasting record farm income of $128.2
billion this year and the ratio of debt to equity is the lowest
ever at 11.3 percent. Many farmers were protected from the
drought last year by crop-insurance payouts that reached an all-time high of $17 billion.

Unusually cold weather may delay planting of spring wheat
in North Dakota, Minnesota and Canada, the second-largest
exporter. Ice delayed the start of grain-barge shipments by
about three weeks on the upper Mississippi River until April 8,
the USDA said April 11.

Investors should buy Kansas City wheat because of the
damage from drought and freezing weather, Christopher Narayanan,
the head of agricultural research at Societe Generale in New
York, said in a report on April 18. Yields will tumble about 15
percent to 34.6 bushels an acre, he said.

“We were struggling without moisture, and now we’ve added
this cold weather to the situation,” said Larry Glenn, an
analyst at the Frontier Ag grain elevator in Quinter, Kansas.
“I don’t think farmers are putting a lot of hope that yields
are going to be great.”